Smart card report points

An ISA – FEEDBACK DocumentISA Confidential 2009 1An ISA – FEEDBACK Document

An ISA – FEEDBACK DocumentISA Confidential 2009 2

Objective and methodology of the document

• The ISA (Indian Semiconductor Association) has proposed a study to understand the smart card industry scenario in India from a semiconductor industry perspective

• The key objectives of the study include• Understanding the overall dynamics of the smart card industry• Current status of the Indian smart card industry• Key usage trends and application areas of smart cards• Global smart card industry practices• Smart card industry practices in India• Drivers for growth, new segments, emerging application areas, changes in

technology• Impact of smart cards on the semiconductor industry

• Around 25+ expert interviews across key stakeholders, including chip suppliers, card manufacturers, RFID suppliers, system integrators, issuing authority, planning commission, smart card association

• Desk research focusing on global and Indian market trends, existing and emerging applications, technology focus, new initiatives, e-governance projects

• Analysis based on primary interviews and desk research

Objective

Methodology


Smart cards and RFID tags – A brief ideology

• In the Indian context,• Contact based smart cards and RFID tags currently have moderate penetration, while

contactless cards are yet to see a significant application base• However in select cases, the smarts cards are built only with memory devices and the

reader re-programs the card when connected

Smart cards are plastic cards embedded with a microprocessor or memory chip

Contact based smart cards Contactless based smart cards RFID Tags

Identification and process based application

Identification based application


Smart card applications in India are currently nascent but have immense potential in the years to come

• A smart card is a combination of electronic modules embedded in a plastic card to perform simple access applications to more complex applications, like monetary computation and identity status. The core function of a smart card is to store and process data based on the application it is programmed for

• The Indian smart card industry is characterized by popular applications like SIM cards, access cards, vehicle registration, tolling, ticketing, loyalty cards, pay TV cards, financial and health cards

• These cards are contact based or contactless, which can be either upgraded or can function as use and throw cards

• RFID, a relatively new technology, is gaining popularity in some areas• RFID tags are used for product tracking and identification application. Some of the

popular applications include vehicle tracking, retail goods tracking, LGP cylinder tracking, library management, auto component tracking


Indian Telecom is the most successful application market for contact based smart cards

Success rate of smart card implementation – Global vs India scenario

Segment An India overview

Telecom India is one of the fast growing economies for high tele-density. Now CDMA phones also use SIM cards. As of end-August 2009, the subscriber base stood at 495 mn. Growth rate of subscriber base is at 15%

Transport Only select public transport in metros have implemented smart cards. Eg. Go Mumbai cards for rail and bus transport

Entertainment Availability of spectrum license for satellite television and conditional access has evolved the pay TV market in India. By the end of 2008, the subscriber base stood at 9 mn. Growth rate of subscriber base is at 30%

BFSI Select banks have introduced Chip and PIN cards, (EMV) which promise high security

Health care Largely a Government initiative to provide medical services to families below the poverty line

Retail Tagging of retail goodsGovernment Driving license, MNIC cards, e-passports are amongst

select initiatives taken by GovernmentEducation Select institutions have started issuing access cards

to studentsHotel Predominantly access cardsOthers Largely tagging application India Global best scenario Source: ISA – Feedback Study, 2009


Status of applications for smart cards and RFID tags in the Indian market

Usage

Segment

Health & Pharma

Retail

Government

Education

Hotel

Others

Under evaluation Nascent Pilot Already

prevalentDiscontinued

Banking

Entertainment

Transport

Telecom

• Majority of the pilot projects have been tested for RFID tagging• Ticketing, Toll collection and e–passports are the only applications tested for contactless smart cards

Access Control

SIM cardsNFC – Near Feed Communication

Access control & Attendance

Vehicle tracking & parking solutionsTicketing and toll

Pay TV cards

Access control & Attendance

Asset tracking Credit cards

Access Control

Asset Tracking

Raw material & goods tracking

Library management Attendance

Access control, Loyalty cards

Electronic passports Toll receipts

Identity cards

Defense plane tracking

Personnel & Ammunitions tracking, LGP cylinder, laptop tracking

MNIC cards Driving licenseVehicle Registration

Source: ISA – Feedback Study, 2009


Bulk of the applications are supported by contact based cards

Segment Applications in India Global applicationsTelecom SIM cards SIM cardsTransport Registration License Tolling and

ticketingVehicle tracking

Registration

License cards

Tolling E-ticketing

Vehicle tracking

Entertainment

PAY TV cards

PAY TV cards

Banking and Finance

Credit card Debit card Credit card Debit card

Healthcare Patient card Insurance Patient card

Insurance

Retail Cash transaction

Loyalty cards SKU tracking

Cash transaction

Loyalty cards

Discount cards

SKU tracking

Government License National ID Security cards

License National ID Security Cards

Passport

Education Campus cards

Library cards Library management

Campus cards

Library cards

Library management

Hotel Hotel cards Hotel cards Frequency cards

Discount cards

Key Cards

Employee access

Others LPG tracking Inventory management

Animal tagging

Animal tagging

Inventory management

Segment arrangement is based on popularity of usagePredominantly contact based Predominantly contactless RFID taggingSource: ISA – Feedback Study, 2009


India is now moving towards contactless cards; however RFID yet to gain popularity

• Shift from the simple application of identification, to more complex applications, like data processing from smart cards

• Technology orientation and scope to integrate futuristic applications, have led to the usage of 16 bit processors

• Need for an all in one card - national acceptance for multiple applications

Processing type

System (excludes SIM cards)

Type

Application

8 bit card

Contact based

Memory card

Access control

Historic Current Future

Majority 8 bit, but 16 bit finding acceptance

Around 80% contact based, 20% contactless

Select cards are memory based, while others are microcontroller based

Access control, identification, driving, tolling, license

16 bit & 32 bit to find maximum applications

Majority of cards being contactless

Only microcontroller based cards

Integrated application cards, likely to be the key

Indian Smart Card Industry Evolution



Government initiatives – potential applications specific to India for smart cards

Projects Description Number of people enrolled with the scheme

Possibility of a smart card conversion and activeness of the project

RSBY Rashtriya Swastya Bima Yojana – Health insurance service for families below poverty line

• 6.2 mn families enrolled till date and have been issued a smart card

• Highly active project for issuance of smart cards

• Target of 15 mn families in FY’ 10

NREGA National Rural Employment Guarantee Act – Employment to the rural poor for a minimum 100 days in a year

• Employment provided to 100 mn households till date

• Highly active project for issuance of biometric based smart cards

• Target of 10 – 15 mn in FY’ 10

Voter ID Photo identification card issued to people to authenticate identity for voting

• 586 mn voter ID cards in India

• Unlikely to convert into smart cards

Ration card Identity document for public distribution system classified using the monthly household income of a family

• 222 mn families with ration cards in India

• Kerala government plans to issue smart card based ration cards

PAN card Permanent Account Number for Income tax

• 84 mn PAN cards issued

• Unlikely to convert into smart cards


Chip suppliers and card manufacturers are technology drivers, while market is driven by governing bodies

• Manufacturers of smart cards

• Integrate SOC with the plastic cards

• Design the system based on the key objectives of usage

• Integrate technology with infrastructure for optimum usage and maximized operations

• Policy makers• Regulatory authority

– set out guidelines for all needs of card users from design, integration to supply

• Key entity to roll out national level projects

• Third party evaluators to verify the sanity of the system

• Technology standardization• NIC, CRIS

• End users have limited influence in driving the need for smart cards• Majority of the smart cards and components are imported; Chip sets, SIM cards, readers, etc.


Market dynamics of smart cards have time and again posed operational challenges for stakeholders in the Indian market Chip suppliers Hitachi Infineon MosChip NXP ST Micro

Reader suppliers CMS Data Net Systems

Ltd. Gemalto M -Tech

Card suppliers Bartronics ERG Gemalto IRIS Kedia M -Tech Orga Siepmanns VCT

System integrators AFTEK CMS EFFKON Explore Infotech iSmart International M -Tech Score Infotech SISL Smart Chip Wipro Xident

Active consortiums CEPS NIC (National Informatics

Centre) SCAFI (Smart Card Forum of

India) SMARS (Smart Rupee System) Zero Mass Promote smart card based

transactions in payment and identification areas

Refer standards and specifications

User segments: Government Sector Telecom Non – Telecom

Note: This is only an indicative list, established through market interaction. The listing is done on alphabetical order

• Industry evolution started with chip suppliers followed by consortiums, system integrators, card and reader suppliers


Regulations and policy framework need to be strengthened to advocate higher issuance of smart cards across segments

• Need to ensure conformance to standards and guidelines • Policy framework should warrant that all the applications and software is developed/

tested by the department of IT (NIC), specially for government projects• Promote collaborative working across departments various systems • Build a wider network of semiconductor companies for authorising and certifying smart

cards for the varied applications

• Ensure faster implementation of projects• Build capabilities for implementation of large scale projects – addressing mass market

volumes for smart card application• Synchronizing cards usage across multiple applications – integrating geographic usage to

common user pool

Issues to be addressed

Focus areas


Indian smart card industry estimated at USD 130 mn for FY’ 09 where cards account for 64%

2008 - 09

Value: INR 6,500 mn (USD 130 mn)

Smart cards64%

Infrastructure + software

25%

Services11%

Of the 140 mn contact based cards, SIM cards account for125 mn Chip sets account for 40 – 50% of the total project cost, while the balance is made up by

card, OS and integration costs Smart cards chips are primarily imported from China, Taiwan, United States and European

Union Penetration of smart cards has been driven by the acceptance of Governing bodies or nodal

agencies, despite higher cost of cards

Market estimates for smart cards and RFID tagsOverall size of the smart card industry

Conversion norm: USD 1 = INR 50Value: USD 84 mn Volume: 158 mn



Contact based cards form bulk of the smart cards business in India

• Contactless is a superior technology, but is yet to find strong foothold, due to cost economics; is likely to gain prominence in the coming years

• New technology phones like Nokia 6212C with NFC driver, capable of acting as smart cards and also as reader terminal (NFC project implemented in Bangalore on a pilot basis)

Smart cards –18 mn cards (excludes SIM cards) RFID Tags – 15 mn tags



Contactless cards are likely to become more popular in future due to competitive costing and longer life of cards

• Smart cards are typically of the following sizes• 2.5 cm x 1.5 cm (SIM cards)• 8.5 cm x 5.5 cm (Others)

• Contactless cards gaining popularity over contact based cards – The ratio likely to change to 50% share for contactless, from the present 20% for non-SIM card applications

• Life of contactless is higher (8 – 10 years) than contact based (3 – 4 years)• RFID tags with a reading range of 5 – 10 cm are the most common; strong challenge

against barcode labels valued at 20 paise per label• Minimal changes in infrastructure for contact based solution and contactless solution;

variation in cost of solution is primarily driven by cost of card

INR per card



Large scale project implementation and technology upgradation amongst key challenges

Technology

Regulation

Awareness

Integration

• Build allied infrastructure (like reader terminals) and improve its penetration across cities

• Work towards educating customers on the extent of application of smart cards across user segments and governing bodies

• Streamline procedures in Government funded projects (approvals, standardization)

• Database generation, integration into one system and authentication - major challenge for UID project

• Integration of existing non smart card users to smart card user pool for existing applications (e.g: e-passports: existing book form passport holders to convert to e-passport)

Cost • Increasing cost pressures from substitute products like magnetic cards (for smart cards) and bar code readers (for RFID tags)

KEY

CHALLENGES


Government projects likely to be the key growth driver for smart cards in India• Government schemes like

NRGEA, RSBY, ESIC and e–Governance projects

• Government participation and strong policy framework

• Growth in telecom subscriber base – key driver for contact based smart cards (SIM cards)

• Increasing awareness on applications of smart cards and reduced prices, likely to see greater acceptance of smart cards in private organizations

• Technology integration and multiple applications of smart cards, expected to drive growth

• Government – • Employee's Provident Fund to issue smart cards for its

26 mn subscribers• Smart Cards for Government employees & laborers in

Goa• The Kerala government to issue smart card based

ration cards• 6 mn cards under RSBY scheme; 10 mn ESIC cards

• Banking and Financial Sector –• ICICI Bank: Smart cards for facilitating transactions,

payments to utilities and services etc.• Reserve Bank of India (RBI): SMARS (Smart Rupee)

project Mumbai Campus Scheme for 150 merchants

• Transport – • Driving license : Gujarat State & Delhi Traffic Police.• Ticketing: Metro railway, Kolkata & (BEST) Mumbai

• Loyalty card – • Promoted by BPCL, HPCL, Snowhite, Homesaaz

• Library Management – • Used for stock taking, to determine the location of the

books at DFRL Mysore, Kerala State Central Library


UID program will be issuing an unique identification number alone and will not necessarily influence the usage of smart cards

• Need for UID number is primarily governed by security requirements of the Indian economy and access to opportunity for the poor, which is identity governed

• Around USD 20 mn planned under UID project for FY’ 10. The authorities will work in close coordination with Home Ministry’s National Population register through the Registrar General of the census, in accordance with the Indian Citizen Act

• National Rural Employment Guarantee Act, Sarva Shiksha Abhiyan, National Rural Health Mission, Bharat Nirma are government schemes covered under UID

• Karnataka has been chosen as the pilot state to implement the project; potential of around 50 mn

• Phase 1, which is database collection, is estimated to complete in around 2 years

• Authenticity and safeguard of information through government nominated data collection centers

• First set of UID numbers expected to be rolled out by 2010-11

• Biometric information like fingerprint and photograph to be used for identification and authentication of a particular UID number

Identity PE, ESI, Pension

Bank account

Police complaints

Property transaction

Employment schemes

Voting Institutional admissions Tax

Driving license

Telemedicine

Passport

Unique Identificati

on number to

every resident of

India

UID can be used for applications which demand background checks


UID can be a backbone to drive high potential for smart cards

• Scope to feed the UID number onto a smart card• Ease of carrying the card and use in applications which require UID number• Individuals do not have to remember 16 digit UID number

• Large number of issuing authorities like Banks, Insurance companies, Mobile phone operators, Schools, Government bodies, Corporate firms can incorporate the UID number in the smart cards for their respective users• Easier and faster background checks• Since UID will be accepted nationwide, the migrating population will be hooked onto

the existing services • Eliminates the possibility of re-allotment based on location

• Scope to converge multiple applications onto the UID based smart cards to make the system future proof• Passports• Vehicle registration and Driving license• Ration cards• Banking and insurance, etc

• Likelihood of an all in one card in the years to come


India offers a huge potential for smart cards with e–governance applications leading from the front

Pointers defining potential

for smart cards

e-passport

Banking

Health

Transport and Ticketing

RFID Tags

• Increase in immigrant population mix of students and working professionals seeking overseas opportunity; around 8 - 10 mn passports issued every year

• Initiative to provide free health check up and treatment for the rural population has given rise to the need for health cards; an estimated 800,000 is the rural population of India

• ESIC – provides health services card to 40 mn people at government subsidized rates

• Government focus on metro rail projects across major cities like Delhi, Mumbai, Bangalore, Chennai, Hyderabad; scope for integration by using common card across public transport

• Huge potential, replacing existing magnetic cards with smart cards; smart cards offer scope for multiple applications using a single card

• Growth in the retail sector and need for tracking the goods helps in efficient stocking

• Growth in segments like transport (vehicle tracking), logistics (container tracking); fuelling demand for RFID Tags


Strong regulations and technology convergence likely to help achieve realistic market numbers by 2014

Action points which would help achieve realistic volumes

• Regulations– Need for a strong regulation which

would govern and monitor smart card implementation on a pan India basis

– A consortium could ideally drive smart card implementation

• Technology convergence– Learnings from the global market

and showcase integration with existing technology

• Inflection points for smart cards– Faster implementation of pilot

projects and converge to established applications

Segments

• Other applications like hotel cards, club cards, access cards are likely promising ones, along with the above listed key application segments

• The Indian market exhibits a huge limiting potential owing to the large population base

• Need for technology future proofing likely to be driven by the usage of 32 bit processors



In summary…

• While India offers a huge potential for smart cards, the biggest challenge is timely implementation and existence of strong regulatory policies

• Different Government departments need to work as a consolidated unit for successful implementation of smart card based projects

Learning from the global smart card market

Capabilities of Indian companies to address smart

card demandEmerging trends – application

and segments

• Suitability of new applications, which can be directly implemented in India

• Technology barriers overcome and converted into proven success, which could be replicated in India

• NFC devices likely to be the next level technology products; doubly used as a smart card and reader terminal

• 16/32–bit cards expected to become more popular, governing the applications built on smart cards

• Strong base of system integrators with exposure to complex system applications

• Import of select components like chip sets, high integrated application smart cards, readers, etc.

Conclusion


Need for an active consortium comprising stakeholders in the smart card ecosystem to increase penetration of smart cards and redefine the market in IndiaKey challenges associated with smart card implementation• Targeting mass population for smart card implementation likely to be a challenge as

rural population is widespread• Integration of services like authenticity of cards and processing specific applications

from a remote location, likely to be a challenge• Reaching out to the rural population and setting up a strongly networked infrastructure

for smart cards

Way forward for the Indian semiconductor industry

• Import of semiconductor chips to address the potential; foundry set-up requires huge investments and rapid change in technology

• SC supplier needs to be a “solution provider” to reap higher benefits in the smart cards and identification business

• Associate strategically with key IT vendors who “ exercise” significant control over potential customers

• Proactive investments in pilots projects; unconditional supply of chipsets and RFID tags for developmental and pilot projects

• Leverage the experience of global markets to develop standardized solutions


Themes for Recommendations – Inputs from the Team (based on the things to be done to benefit the semicon industry)

• Government programs – Enlist various government programs which could potentially make use of smart cards. Showcase the benefits to individuals and Government by usage of smart cards for these programs

• Implementation and impact on economy - How will the use of smart cards impact the economy as a whole – learnings from the global market

• Government policy and regulations – Flexibility in operations, interoperability, use of local foundry

• UID to create opportunity for smart cards – Convince Government to include UID number onto smart cards, along with biometric and photo image of individuals

• Benefits to the ecosystem – Enlist the benefits for the stakeholders/ companies involved in the smart cards ecosystem from a semiconductor perspective

• Boost local manufacturing – Activities that could be locally managed (design, manufacturing of cards, readers, etc.) relate to employment generation with local interest


Glossary of terms used in the documentTerms DefinitionBEST Bombay Electric Supply and Transport CompanyBPCL Bharat Petroleum Corporation Limitedbn BillionDFRL Defense Food Research LaboratoryEMV Europay Master VisaESIC Employee State Insurance CorporationHPCL Hindustan Petroleum Corporation LimitedINR Indian National RupeeLPG Liquefied Petroleum Gasmn MillionNFC Near Feed Communication


Glossary of terms used in the documentTerms DefinitionNIC National Informatics CentreNREGA National Rural Employment Guarantee ActOS Operating SystemRFID Radio Frequency IdentificationRSBY Rashtriya Swasthya Bima YojnaSIM System Interface ModuleSMARS Smart RupeesUID Unique Identification USD United States Dollar

An ISA – FEEDBACK Document

Thank you

ISA Confidential 2009 27

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Smart card report points